European and U.S. stock markets spiked higher Monday after a respected banking analyst stoked hopes that this week’s earnings from some of the U.S.’s leading banks may well surprise to the upside.
The FTSE 100 index of leading British shares closed up 74.96 points, or 1.8 percent, at 4,202.13 while Germany’s DAX jumped 146.03 points, or 3.2 percent, to 4,722.34. The CAC-40 in France was up 68.98 points, or 2.3 percent, at 3,052.08.
And on Wall Street, the Dow Jones industrial average was up 128.47 points, or 1.6 percent, at 8,274.99 around midday New York time, while the broader Standard & Poor’s 500 index rose 13.50 points, or 1.5 percent, at 892.63.
The catalyst to the advance in Europe and the U.S. was analyst Meredith Whitney when she told CNBC Television that she had upgraded her recommendation on U.S. investment bank Goldman Sachs Group Inc. to “buy” and raised her price target to $186 a share — a day before it reports its second-quarter earnings. Whitney, who has been viewed as bearish on the sector, also said Bank of America Corp. could be good value.
In the wake of the comments, Goldman Sachs’s share price rose 4.5 percent to $148.18 while Bank of America spiked 5.4 percent to $12.52. The gains weren’t just confined to the U.S. In Europe Commerzbank AG rose over 4 percent, Barclays spiked nearly 6 percent while Credit Agricole SA rallied 5 percent.
Whitney’s upgrade “has given markets a shot in the arm,” said Richard Hunter, equities strategist at Hargreaves Lansdown stockbrokers in London.
Her comments came as investors were gearing up for the U.S. second quarter reporting season, which really kicks into gear this week. Investors will be particularly interested to see if the U.S. banks, which arguably were the catalyst to the first synchronized global economic downturn since the Second World War, have got their finances back into health following massive government bailouts and share offerings.
Goldman Sachs is the first major U.S. financial institution to report on Tuesday, followed by JPMorgan Chase & Co., Bank of American Corp. and Citigroup Inc. later in the week.
“There is no point in having a manicure at the start of this week because you’ll be biting those nails by the end once the U.S. bank earnings are hitting the screens,” said David Keeble, an analyst at Calyon Credit Agricole.
It’s not just the banks in focus this week. The world’s biggest chip maker Intel Corp. will also likely generate headlines Tuesday when it reports, as will search engine firm Google Inc. on Thursday.
“The consensus is far from clear on corporate performance and companies’ medium-term outlooks and their views on the macro environment will be as important as the results themselves,” said Gareth Berry, an analyst at UBS.
Equities rose from the middle of March until the start of June on hopes that the U.S. economy in particular will recover from recession sooner than anticipated and that stocks were undervalued relative to their earnings potential.
But disappointing economic news over the last few weeks, culminating in a worse than expected U.S. jobs report for June, altered the mood prevailing among investors that a significant rebound in the U.S. was a possibility. Since recent highs in early June, the S&P index and the Dow Jones industrial average have dropped around 7 percent.
Earlier, every major market across Asia market dropped, with Japan’s index racking up its ninth straight loss as the country’s embattled prime minister moved to dissolve parliament and call general elections for next month.
The Nikkei 225 stock average tumbled 236.95 points, or 2.6 percent, to 9,050.33 as Prime Minister Taro Aso told ruling party leaders Monday he will dissolve parliament and hold general elections next month, following a crushing defeat for his party in Tokyo municipal polls, considered a barometer of voter sentiment.
Meanwhile, Hong Kong’s Hang Seng shed 453.79, or 2.6 percent, to 17254.63, while South Korea’s Kospi dived 3.5 percent to 1,378.12.
Elsewhere, Taiwan’s market dropped 3.5 percent as investors worried that a partial free trade agreement with mainland China would be delayed until next year and Australia’s index lost 1.5 percent. Shanghai’s main stock measure lost 1.1 percent.
Oil prices continued to fall despite a short-lived reprieve as stocks clambered higher. Crude for August delivery was down $1.08 at $58.81 a barrel.
The dollar was up 0.2 percent at 92.66 yen, while the euro rose 0.1 percent to $1.3964.
Copyright 2009 The Associated Press.